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Larsen/Carey/Carey

QUIZ Chapter 1 ANSWER KEY

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Multiple-Choice & True/False 15 Multiple-Choice and True/False questions. Each question is worth 4 points for a total of 60 points:

1. The real estate industry has an enormous impact on the overall economy? True or false?

ANSWER: True REFERENCE: 1.1

2. A “normal” market is one in which neither the seller nor the buyer has the advantage. True or false?

ANSWER: True REFERENCE: 1.5

3. Real estate accounts for what percentage of wealth in the United States?

a. 20%

b. 25%

c. 45%

d. 75%

ANSWER: C REFERENCE: 1.1

4. Real estate is defined as:

a. land itself.

b. land and what is affixed to it.

c. personal property.

d. houses and buildings, independent of the land to which they are affixed.

ANSWER: B REFERENCE: 1.1

5. Real estate brokers are licensed by individual states to provide which of the following services?

a. Helping the seller arrive at a realistic sales/lease price

b. Assisting in the negotiations between seller and buyer

c. Marketing property

d. All of above

ANSWER: D REFERENCE: 1.2.2

6. A loan originator:

a. explains the loan, assists the borrower in filling out forms, and collects necessary documentation.

QUIZ

Chapter 1 ANSWER KEY

b. makes sure that the loan package is filled out correctly and that all necessary documents are included.

c. reviews the information in the loan package and determines whether the loan will be granted.

d. closes the loan and files the necessary documents.

ANSWER: A REFERENCE: 1.2.2

Larsen/Carey/Carey

QUIZ Chapter 1

ANSWER KEY

7. Why is home inspection crucial when buying a home?

a. Lenders will not loan money if there are too many problems with a property.

b. It gives the buyer a realistic picture of the nature of his or her purchase.

c. It gives the seller a layer of protection from unhappy buyers.

d. All of the above

ANSWER: D REFERENCE: 1.2.2

8. Which of the following is true with regard to real estate attorneys?

a. They must always be involved in real estate closings.

b. They must be involved in transactions over $500,000.

c. They must be involved in all commercial leasing.

d. None of the above

ANSWER: D REFERENCE: 1.2.2

9. Appraisers provide which of the following services?

a. They formulate the exact worth of a piece of property.

b. They give their opinions about the value of a piece of property.

c. They advise buyers as to whether they are getting a good deal.

d. They advise sellers as to the exact selling price they will be able to receive.

ANSWER: B REFERENCE: 1.2.3

10. Realtor is a copyrighted name that is used by which organization?

a. National Association of Real Estate Brokers

b. National Association of Real Estate Professionals

c. National Association of Realtors

d. National Association of Real Estate Advisors

ANSWER: C REFERENCE: 1.3.2

11. Why is it important to distinguish between real property and personal property?

a. laws treat each type of property very differently

b. it really isn’t that important to know the difference

c. conveyances of both types have to be filed in the county courthouse

d. personal property is always more valuable

ANSWER: A REFERENCE: 1.4.2

12. The set of laws that govern the conveyance of personal property are called the:

a. Property Code.

b. Uniform Commercial Code.

c. Code of Personal Property.

d. Insurance Code.

ANSWER: B REFERENCE: 1.4.2

Larsen/Carey/Carey

QUIZ Chapter 1

ANSWER KEY

13. The Statute of Frauds applies to the transfer of an interest in real property and states that:

a. the Uniform Commercial Code must be followed.

b. all transactions involving real estate must be recorded.

c. all transactions involving the transfer of an interest in real property must be in writing to be enforceable.

d. the Deceptive Trade Practices Act does not apply to real estate transactions.

ANSWER: C REFERENCE: 1.4.2

14. Normally, fixtures that tenants install become property of the landlord. Exceptions to this general rule include:

a. trade fixtures placed in commercial spaces.

b. fixtures that can be easily removed.

c. fixtures that cost more than $1,000.

d. fixtures installed without the landlord’s approval.

ANSWER: A REFERENCE: 1.4.3

15. Real estate commissions are:

a. uniform throughout the United States.

b. set by state law.

c. set by federal law.

d. are negotiated between the parties.

ANSWER: D REFERENCE: 1.2.2

Short Answer

5 Short Answer questions. Each question is worth 4 points for a total of 20 points:

16. Name and briefly describe four of the professions within the real estate market. REFERENCE: 1.2.2

Answers will vary but may include the following:

 Real estate brokers assist individuals and businesses in selling, leasing, buying, and financing property.

 Real estate agents and sales associates work under the supervision of brokers.

 Mortgage lenders provide the money to purchase real estate.

 Home inspectors examine property and provide the buyer and/or seller with a list of defects in a particular piece of property.

 Real estate attorneys review contracts, draft contracts, represent parties, and dispute and otherwise help buyers and sellers know their legal rights and obligations.

 Contractors and builders facilitate the construction or remodeling of real estate.

 Architects design buildings.

 Appraisers give an opinion about the value of a particular piece of real estate.

 Title insurers insure the title to property.

Larsen/Carey/Carey

QUIZ Chapter 1 ANSWER KEY

 Title abstractors chain the title to property.

 Settlement agents conduct the real estate closing.

This list might also include surveyors, developers, subdividers, property managers, real estate advisors, researchers and educators.

17. Correlate seller’s markets and buyer’s markets with the boom and bust of the real estate market.

REFERENCE: 1.5 and 1.1

A seller’s market means sellers are receiving their asking price or more as the value of real estate is increasing. This would be the boom time in the real estate market. A buyer’s market happens when prices fall and buyers have the advantage because there are too many homes for sale and too few buyers. This corresponds with busts in the real estate market.

18. Discuss how personal property becomes a fixture.

REFERENCE: 1.4.3

Personal property becomes a fixture if it is installed or affixed in such a way that it becomes a part of the real property. Tests to determine whether an item has become a fixture consider the manner of attachment, the intention of the parties, how the personal property was adapted, the effect of removal, and the association with the property.

19. What is the difference between abstract of title and title insurance?

REFERENCE: 1.2.3

Abstract of title is the history of a piece of property. Title insurance insures a buyer or lender that they have title to a piece of property.

20. Real estate can be classified by use. Name three of the use classifications besides residential.

REFERENCE: 1.5.2

Answers will vary but may include the following:

 Commercial real estate

 Hotels/motels

 Industrial real estate

 Recreational real estate

 Institutional real estate

 Agricultural real estate

QUIZ Chapter 1 ANSWER KEY

Essays/Problems

2 Essays/Problems. Students should answer both questions using complete sentences for essays and show all work for problems. Each essay/problem is worth 10 points for a total of 20 points:

21. Explain how the real estate market and the business cycle are connected. Include how they interact to bring the economy up or down, and use statistics from the chapter to illustrate your argument.

REFERENCE: 1.1

In 2004, real estate accounted for 12.4% of the gross domestic product in the United States. The industry also supplies more than 6% of all jobs in the U.S., which equaled more than 2 million jobs in 2005. In addition, real estate accounts for 45% of all wealth in the United States and about 54% of all wealth worldwide. Based on these numbers, it is easy to see that a downturn in the real estate market fundamentally affects the economy as a whole. For example, a downturn in the overall economy means that people have less money to spend on housing costs. This puts builders, brokers, developers, title insurance companies, building material companies, lenders, construction workers, and many others out of work. Because these people have less expendable income, they eat out less, go to the movies less, and certainly won’t be buying a new car or television until they have a job again. This creates a downward spiral in the economy as a whole, which then forces more layoffs in the real estate sector. A downturn in the economic cycle is caused when supply exceeds demand. In other words, if there is too much of an item and no market for that item, then the people who supply the raw materials to make the item, the people who actually make the item, the people who transport that item to market, and the people who then sell the item to the consumer will not be needed. This equals a lot of people without jobs, and, as discussed above, this has a domino effect on the rest of the economy. In real estate, this can be called an “adjustment,” a “recession,” a “depression,” a “bust,” or a “buyer’s market.”

On the other hand, when there is high demand for an item and not enough of that item (less supply than demand), workers will be hired to produce the raw materials, produce the item, transport the item, and sell the item. As this trend continues, more workers are needed in all the segments of the economy, and employment rates rise. People then have more money to spend, which feeds the need for more houses and apartments. Rents and housing prices go up. People buy more consumer goods, and even more people are hired to make these goods. The value of real estate continues to go up. Some people get home equity loans and spend that money in other segments of the economy. Other people sell their homes for a profit and have extra money to spend. This is called “expansion” or a real estate “boom.”

Full Credit

Quote some statistics on real estate and the overall economy. Talk about the economic cycle. Understand that when the cycle is up, people have more money to spend in all segments of the economy. Understand that the opposite is true when the cycle is down.

75% Credit Half Credit 25% Credit No Credit

Know some statistics and the terms in the business cycle. Include some discussion of too little or too much of a product and that effect of this situation on the economy.

Know some statistics or the second part of the 75% credit answer.

Know some of the business cycle terms or explain one tiein between the real estate market and the general economy.

Student does not mention the business cycle, does not cite any statistics, and does not understand how an upturn or downturn in the economy will impact real estate prices.

QUIZ Chapter 1 ANSWER KEY

22. Discuss the six basic factors that determine the value of real property.

REFERENCE: 1.4.4

The six basic factors that determine the value of real property are as follows:

 The first factor is that of competition. If a lot of people want the same piece of property, the value of the property will go up. People will actually bid against each other so that the seller ends up with a sales price higher than his or her asking price. On the other hand, if no one wants the property the value will go down until it reaches a point at which someone wants it.

 Scarcity also plays a factor. When demand exceeds the supply, value goes up. If demand is less than supply, the value will go down.

 The third factor, modification, relates to things that have been changed either within the boundaries of the property or outside the boundaries of the property. Inside the boundaries, an owner may add more square footage or reroof or repaint. Outside the boundaries, a dump may open within smelling distance of a piece of property, for instance.

 Where the property is located is also crucial to the value. The fact that you cannot move real estate to a better market is the main part of the location analysis. Situs, the preference that people have for a particular area also affects the value. Situs explains why lakefront property is more expensive that property that abuts a railroad track.

 Heterogeneity, the fifth factor, refers to the fact that no two pieces of real estate are exactly alike. Even row houses are located different distances from major streets, schools, and parks.

 The last factor is durability. Real property tends to last a long time. The land itself is virtually indestructible. The value of land goes up and down but as a long term investment it very rarely disappears completely.